What is a 1031 exchange?

A 1031 exchange, also known as a like-kind exchange, is a powerful tax-deferment strategy popular with experienced real estate investors. It allows you to defer capital gains taxes on an investment property when it’s sold—as long as the investor purchases another like-kind property with the proceeds of the first property sale.

Can a 1031 exchange help you grow your real estate investment portfolio?

Investors can grow their real estate investment portfolios faster by taking advantage of a 1031 exchange. Instead of paying taxes on their proceeds, they keep all their money and reinvest it into a new property. Let’s say the value of an investor’s rental property has grown, and they want to reinvest in another property.

Can you sell a rental property in a 1031 exchange?

Before the law was changed in 2004, an investor might transfer one rental property in a 1031 exchange for another rental property, rent out the new rental property for a period, move into the property for a few years, and then sell it, taking advantage of exclusion of gain from the sale of a principal residence.